Rekha Vatsa is a seasoned financial services professional with a successful track record in driving innovation, agility, and business growth. She has led technology teams to enhance product capabilities and data delivery solutions for asset management and insurance segments using next-gen technology powered by big data, cloud, and analytics.
Rekha currently leads the product team for the insurance market and regulatory solutions at Clearwater.
The Sustainable Finance Disclosure Regulation (SFDR), governed by the European Union (EU), is a key component of the EU’s sustainable finance agenda and is designed to promote greater transparency and consistency in environmental, social, and governance (ESG) disclosures by financial market participants and advisers.
The SFDR applies to financial market participants and financial advisers operating in the EU, including investment managers, pension funds, insurance companies, and banks. It requires parties to produce mandatory disclosures at both the product and entity levels – failure to comply can result in significant reputational damage.
Financial products subject to SFDR include:
The SFDR provides a framework for the disclosure of ESG information to help investors make informed investment decisions and promote sustainable investments. These disclosures have been passed at two levels:
SFDR requires financial market participants and financial products to disclose PAIs. The PAIs refer to the negative effects that companies or investments are having on the environment, society, and governance (ESG) aspects. The disclosure of principal adverse impacts aims to provide transparency and accountability about the real-world impact of investments.
The PAI’s that financial market participants and financial products are required to report under SFDR include:
The disclosure of PAIs in Annex 1 to 5 should include an explanation of the methodology used to identify, assess, and prioritize the PAIs. It should also describe the actions taken to mitigate the reported principal adverse impacts and any relevant progress made in addressing these impacts. The disclosure of PAI’s is intended to provide investors and stakeholders with a clearer picture of the specific ESG risks and opportunities associated with investments.
The calculations required for PAIs will depend on the specific indicator being reported and the methodology used to assess the negative impacts. Some of the required calculations are:
At Clearwater, we are continuously monitoring the changing ESG regulatory reporting landscape, this includes the recent consultation by the European Supervisory Authorities (ESAs) proposing amendments to disclosures made under SFDR.
If you are interested in learning more about Clearwater’s commitment to assist in your ESG regulatory reporting, we can help! Register to speak to an expert today to learn how.